Reserve Bank of New Zealand decided to keep rates unchanged at a meeting today. The official cash rate was left unchanged at 5.50%, in-line with market expectations. However, the decision sparked a jump on NZD market, with NZDUSD adding to recent rally. The move was driven by upside revision to RBNZ interest rate forecasts as well as hawkish comments from RBNZ Governor Orr.
A new set of interest rate forecasts from RBNZ
- December 2023: 5.55% vs 5.54% in previous forecast
- March 2024: 5.63% vs 5.58% in previous forecast
- June 2024: 5.67% vs 5.59% in previous forecast
- September 2024 (peak): 5.69% vs 5.57% in previous forecast
- December 2024: 5.66% vs 5.50% in previous forecast
- December 2025: 4.95% vs 4.51% in previous forecast
- December 2026: 3.55%
RBNZ revised its Official Cash Rate projections higher in November's Monetary Policy Statement. Source: RBNZ
A point to note is that new rate forecast from RBNZ does not predict rate cuts until mid-2025. Apart from rate forecasts, RBNZ also issued inflation and growth forecasts today. While inflation is still expected to get back to 1-3% target by the third quarter of 2024, growth forecasts no longer suggest that New Zealand economy will face a recession, what was the case in the previous set of forecasts.
On top of a hawkish revision to rate forecasts, NZD got a boost from RBNZ Governor Orr during a post-meeting press conference. Orr said that discussion on raising interest rates was held at today's meeting as central bankers are 'nervous' that inflation remains above RBNZ target since early-2021. This shows are rate hikes in New Zealand are not off the table and a hike may be delivered at RBNZ next meeting (February 28, 2024). However, money markets are not buying into this narrative with OIS market seeing just a 5% chance of a 25 basis point rate hike in February.
Source: Bloomberg Finance LP
Taking a look at NZDUSD chart at D1 interval, we can see that the pair jumped to a 4-month high today and tested the upper limit of a market geometry in the 0.6200 area. However, bulls failed to break above and this suggests, according to the Overbalance methodology, that the downtrend on the pair is still live. Pair has erased almost all the gains later on and is now trading in the 0.6150 area.
Source: xStation5
